The Drive-Thru: McDonald's black franchisees struggle, Chipotle stages a comeback, and we revisit In-N-Out
Hello! Welcome to The Drive-Thru. I'm Kate Taylor, and I'll be offering a rundown of the biggest stories in retail every Friday. If someone forwarded you this email or it is your first time reading for some other reason, you can subscribe here!
This week, I can finally share the details of an investigation I've been working on for more than a month. Read on for the details, plus more on shopping, fast food, and a delightful return to In-N-Out.
Inside black McDonald's franchisees' struggles
I've spent the last month talking to McDonald's franchisees and poring over leaked internal documents from the company and franchisee groups. It was a difficult story to write, and I am indebted to people who talked to me. Here are some takeaways:
- Black franchisees, on average, make less than white franchisees. And, the disparity has been growing. In 2012, the cash-flow gap between the averages was less than $24,600, according to leaked documents from the National Black McDonald's Owners Association. In 2017, it reached $60,600. Two franchisees say the gap has since grown to about $68,000.
- McDonald's franchisee count is shrinking, with black franchisees being hit particularly hard. Franchisee count went from 2,100 to about 1,700 during Steve Easterbrook's time as CEO from 2015 to this November. The number of black franchisees went from 261 to less than 200. Read the deep dive on Easterbrook's impact on franchisees here.
- There are many systemic reasons why black franchisees are struggling. Lack of generational wealth, alleged discrimination from McDonald's consultants, and higher costs are just a few of the issues.
- Many black franchisees are fed up. "We have said for many, many years as African American operators, there's two standards. There is one for us and there's one for our general market operator," Ken Manning, who sold his McDonald's locations in 2017, told me.
- McDonald's new leadership team is leaning in on diversity and corporate ethics messaging. On Monday, McDonald's announced it had elected WNBA commissioner Cathy Engelbert to its board of directors, a move that Chairman Enrique Hernandez Jr. said underscores the company's "commitment to diversity at all levels." Read the inside story on new CEO Chris Kempczinski's work to push a renewed emphasis on corporate values here.
- On Wednesday, McDonald's announced it had created a new role focused on franchisee diversity. The title: "vice president of operator diversity." Read my scoop here.
Read the full investigation here. And, feel free to reach out with your thoughts at ktaylor@businessinsider.com - especially if you're a McDonald's employee or franchisee.
How Chipotle's new CEO turned the chain around
I also finally published my look into Chipotle's turnaround! In November, I talked to the chain's CEO, CFO, and CTO about how the company pulled out of its downward spiral over the last year.
The most interesting thing about the turnaround, to me, was CEO Brian Niccol's focus on Chipotle's second make line, which the company renamed the digital make line earlier this year.
"Once you actually get into the business, you realize, well jeez, not only is there opportunity to continue to take a different point of view on food, with the real cooking, the real ingredients, the idea of giving everybody access to that - but it's like, wow, we've got the second make line," Niccol told me.
Read the full profile on Niccol - who used to be Taco Bell's CEO! - here.
Coca-Cola's CEO talks regrets
Shoshy attended this year's Beverage Digest Future Smarts conference and got the scoop on some of Coca-Cola CEO James Quincey's regrets.
On the topic of his biggest regrets, Quincey said: "I wish I'd just paid attention to the truisms and gotten on with it even faster."
And, Quincey had some more concrete regrets as well. When asked whether his company waited too long to launch a new sparkling water, Quincey cited the company's existing sparkling water offerings such as Dasani Sparkling drinks, but then added, "We should have done it a lot sooner."
Read Shoshy's full story on Coke's plans on sparkling water here.
The saga of the cocaine Santa sweater
This week, Walmart pulled a controversial sweater that appeared to show Santa Claus doing cocaine.
However, the Colombian government said that apologizing was not enough, and it is demanding compensation from Walmart over the product description's reference to "quality, grade A, Colombian snow," saying it's an "offense to the country."
Meanwhile, the sweater and others like it are still for sale on Amazon.com, highlighting the challenges the e-commerce giant faces as it builds out its marketplace of third-party sellers.
Read more about the saga here, here, and here.
The rise of the digital Santa
Bethany reports on how digital services and apps are offering virtual chats with Saint Nick this holiday season.
"The kids are so used to it. They FaceTime with their grandparents and they talk to everybody through video calls anyways, so this is a totally natural way for them to be able to interact with Santa," said Meredith Lueck, cofounder of Welcome Santa, a service that helps kids video chat with Santa.
Read the full, festive story here.
Taste test of the week: Irene revisits In-N-Out
Irene is on the West Coast this week and took the opportunity to stop by In-N-Out. The burger was as good as ever, but the fries disappointed.
Irene's take: "I walked back to my hotel basking in the afterglow of an extraordinary meal, debating whether it'd be rash to move to LA just for the sun and the In-N-Out."
Everything else you need to know
- Away's CEO stepped down days after an explosive exposé of the company's culture.
- Shoshy talked to a 27-year-old about how he makes millions of dollars reselling sneakers.
- Áine analyzed how Sears' rise and fall explains the decade of the retail apocalypse.
- Costco admits it "left something on the table" with its Thanksgiving website crash.
- Build-A-Bear says its "Frozen 2" toys aren't selling as well as expected!
- The cocaine Santa shirt is still available on Amazon, even though Walmart pulled it from its site.
- IHOP is opening a fast-casual chain.
- We got our first look at Beyoncé's new Ivy Park collab with Adidas.
- I am calling it - the worst tweet of the decade was the Vita Coco pee jar incident. Fight me on Twitter about it at @Kate_H_Taylor.
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